Seagull to Buy Ocean Energy in $1.1-Billion Stock Deal

NEW YORK — Seagull Energy Corp. said Wednesday it's buying Ocean Energy Inc. for $1.1 billion in a stock transaction that would create the 10th-largest U.S. independent oil and natural gas exploration and production company.

The new company, to be called Ocean Energy Inc., would have a market capitalization of $1.8 billion and proved reserves of about 500 million barrels of oil. It will be based in Houston, where both companies have their headquarters.

The transaction comes amid a wave of mergers, joint ventures and other consolidations in the U.S. oil industry as it struggles with world oil prices near 12-year lows. On Wednesday, benchmark Brent oil futures in London trading plunged below $11 a barrel and West Texas Intermediate crude oil futures in New York fell under $12 a barrel.

Based on Tuesday's closing prices, the deal would value Ocean Energy at $10.81 per share, Seagull's closing price on Tuesday.

Under terms of the deal, Seagull, with a market capitalization of $700 million, will assume Ocean's $1.25 billion of debt, giving the new company a total debt load of $1.9 billion. Its debt-to-market capitalization ratio, a measure of its financial flexibility to deal with the poor commodity price environment, will be 62%.

That high debt load worried Wall Street on Wednesday. Seagull's stock fell $1 to close at $9.81, and Ocean's stock lost 75 cents to close at $9.50, both on the New York Stock Exchange.

Ocean Chief Executive James Flores, who will become chairman of the merged company, told analysts and investors in a conference call that the merged companies would see annual cost savings of $45 million, slash their combined work force by one-third to 800 from 1,200, sell up to $200 million of assets and cut capital spending to $500 million to $600 million.

Executives of the two companies emphasized that their size and cost savings would make them better able to face weak oil prices.

Hackett projected that the merged companies will see oil and natural gas output rise 5% in 1999 and 10% in 2000.

Combined, Ocean and Seagull produce an average of 80,000 barrels of oil and 622 million cubic feet of natural gas, while reserves are 500 million barrels of oil equivalent.